Economic rebellion

24 April, 2016 at 08:35 | Posted in Economics | 8 Comments

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Listen to the program here.

Mainstream economists like Paul Krugman and Simon Wren-Lewis think that yours truly and other heterodox economists are wrong in blaming mainstream economics for not being real-world relevant and pluralist. To Krugman there is nothing wrong with ‘standard theory’ and ‘economics textbooks.’ If only policy makers and economists stick to ‘standard economic analysis’ everything would be just fine.

I’ll be dipped! If there’s anything the last decade has shown us, it is that economists have gone astray in their tool shed. Krugman’s ‘standard theory’ — mainstream neoclassical economics — has contributed to causing today’s economic crisis rather than to solving it.
Rethinking econ_0

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  1. Absolutely! So it is up to us to write something better than the ‘standard theory’ and to support what probably are a number of early attempts to do so, including incidentally mine.

  2. “I’ll be dipped! If there’s anything the last decade has shown us, it is that economists have gone astray in their tool shed. ”

    I think part of the problem is using tool-boxes and tool-sheds in the first place.

    Models are the opium of the economics profession.

  3. Krugman does not understand the problems with models at all.

    http://krugman.blogs.nytimes.com/2016/04/25/economics-and-self-awareness/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body

    The problem with models is that the conclusions are determined by the model, not the facts. They might be true, but so might many other things. They can seriously lead you up the wrong track. Models are reference points. As are theories. They may be referred to AFTER your ground up investigation has been done.

    One thing I read a lot in economics is “this can be explained by this theory” That is not an answer. What I want is the documented evidence of the causal mechanism

  4. Nanikore
    .
    “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)
    .
    Standard economics is cargo cult science. The question is, how does Heterodoxy proceed from this common understanding of the actual situation?
    .
    Obviously, criticizing model bricolage and mathiness and unrealism is fully justified but not very productive. What is the alternative? The flight to naive empiricism and history is the wrong way. The acceptance of the pluralism of false models is the wrong way. To discuss Trump vs. Clinton is the wrong way.
    .
    “The moral of the story is simply this: it takes a new theory, and not just the destructive exposure of assumptions or the collection of new facts, to beat an old theory.” (Blaug, 1998, p. 703)
    .
    Orthodoxy has failed, no doubt, but Heterodoxy has failed to develop a superior alternative. Economics, represented by the four sects Walrasians, Keynesians, Marxians, Austrians, is still at the proto-scientific stage.
    .
    One possible reaction to this embarrassment is to give up the idea of scientific truth in economics and to resort to anything goes and storytelling. This attitude is rather popular among heterodox economists — and it is self-defeating.
    .
    “If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111). Without this aspiration economics degenerates to mere opinion, pluralism of false theories, and in the last consequence to brain-dead political blather.
    .
    True, Krugman does “not understand the problem with models” but neither does Nanikore or the Swedish branch of Heterodoxy.
    .
    Egmont Kakarot-Handtke
    .
    References
    Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield, VT:
    Edward Elgar.
    Blaug, M. (1998). Economic Theory in Retrospect. Cambridge: Cambridge University Press, 5th edition.
    Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic
    Method in Economics and Econometrics. Cambridge, MA: MIT Press.

  5. You are missing out the Georgist School of macroeconomic thought and philosophy. (See http:www.progress.org and HenryGeorge). This school of thought does provide some better explanations, but no model is currently available for testing, although it is in the reference.

    Reference: Chester D.H. Consequential Macroeconomics–Rationalizing About How Our social System Works. Lambert Academic Publishing, Saarbrucken, Germany, 2015

    see also DiagFuncMacroSyst.pdf

    • David Chester
      .
      You remind me: “You are missing out the Georgist School of macroeconomic thought and philosophy.”
      .
      True, but my argument applies to the Georgist School as well.
      .
      It is of utmost importance to distinguish between political and theoretical economics. The main differences are: (i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works. (ii) In political economics anything goes; in theoretical economics scientific standards are observed.
      .
      It is perfectly legitimate to push an agenda. That’s NOT the point. The point is that agenda pushers use economic theory as a means to an end. And that is the wrong priority from the viewpoint of science.
      .
      Adam Smith, Ricardo, Marx, Henry George, Keynes, Hayek or Friedman were political economists. I do not criticize their political objectives, I criticize that they were lousy scientists, that is, their respective theories do not satisfy the scientific criteria of formal and material consistency. In other words, when the underlying theory is provably false economic policy proposals are hanging in midair. It does no matter how good and sensible they appear, they are scientifically worthless.
      .
      This said, I agree with the Georgist School that the treatment of land in standard economics is false since Ricardo (2011).
      .
      I do not agree, though, with this job description ‘consequential macroeconomics–rationalizing is about how our social system works.’
      .
      To figure out how the social system works is the task of sociology and/or political science. The task of economics is to figure out how the economic system works.
      .
      The ludicrousness of economists derives from the fact that they have failed on their mission and cannot explain how the actual monetary economy works (2015) but tell the world how to improve society — which is none of their business as scientists.
      .
      Egmont Kakarot-Handtke
      .
      References
      Kakarot-Handtke, E. (2011). When Ricardo Saw Profit, He Called it Rent: On the Vice of Parochial Realism. SSRN Working Paper Series, 1932119: 1–19. URL
      http://ssrn.com/abstract=1932119.
      Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350.

  6. Egmont. I am happy with stories. As long as they are not in the fiction department.

    In modern economics you get stories. But these are fictional. These are made up stories for the astonishingly banal reason of simply wanting to get a mathematical model.

    • Nanikore
      .
      The average person dislikes an objective explanation (e.g. the thunderbolt is an electromagnetic phenomenon subject to physical laws) and likes a subjective explanation (e.g. Zeus threw the thunderbolt because he was angry/vengeful/authoritarian). The scientific explanation takes the form of a theory, the non-scientific explanation takes the form of a narrative. Almost all societal communication consists of storytelling/blather/wish-wash/truisms, only a tiny part has scientific content.
      .
      Economics claims to be a science, yet has never risen above the level of storytelling. Accordingly, the SUBJECTIVE explanation of unemployment (UE) takes the following forms.
      .
      Psychologism: the unemployed actually enjoy UE, are indifferent, have resigned, suffer. Darwinism: UE’s are unfit, unqualified, lack motivation, are beyond help. Moral hazard: UE is the result of a wrong incentive structure or of perverted rewards/punishments, UE’s game the system. Mind reading: leisure is rationally preferred by UE’s over work at the given wage. Moralizing: the UE’s deserve their fate. Blaming: UE is a self-inflicted blow-back of irrational behavior, i.e. of sticky wages, strikes, shirking. Historicism: today’s unemployment is the result of known adverse external shocks and identifiable wrongheaded measures of DEMs/REPs/FED/GOV since WWII. Sociologism: the UE’s have not enough leverage for changes in their favor; are brainwashed into acceptance of everything. UE is deliberately created by capitalists/oligarchs/one-percenters/government as means of social control. UE’s are the losers in a rigged power-play.
      .
      Within this tiny intellectual box of folk psychology, folk sociology, folk history, and folk politics economic storytelling has taken place since Adam Smith: “Smith … disliked whatever went beyond plain common sense. He never moved above the heads of even the dullest readers. He led them on gently, encouraging them by trivialities and homely observations, making them feel comfortable all along.” (Schumpeter)
      .
      While dabbling in the so-called social sciences, economists overlooked that economics is a system science and that it is their very task to explain how the actual monetary economy works. Until this day, economists do not even understand what profit is. And it should be obvious that they will never find it out by second-guessing and interpreting and understanding human behavior. This is NOT how science works, this is how sitcom entertainment works. In market contrast, the OBJECTIVE systemic analysis delivers the Profit Law and the testable employment equation (2015), which identifies the effective economic levers for the achievement of full employment.
      .
      Storytelling is not prohibited, of course, neither is the pluralism of any number of false theories, but there is no place for storytellers in the sciences. So, BOTH orthodox and heterodox economic storytellers have to leave them for good now because of proven scientific incompetence over more than 200 years.
      .
      Egmont Kakarot-Handtke
      .
      References
      Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350


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